Study on the timing of investment decision of real estate projects based on the real option theory

Abstract

Real estate investment project has the real option characteristics such as long time development, high capital and high investment risk. Contrasting with the traditional evaluation method, the real option theory is more scientific one that considers the value of the management flexibility and strategic investment. Considering the management flexibility, the timing of investment can improve the value of the project. This paper builds the optimal investment timing model to explain why the developers will delay the investment. The factors affecting the optimal investment time are discussed through the sensitivity analysis.